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24th Voorburg Group Meeting

VIEWS: 16 PAGES: 20

									25th Voorburg Group Meeting On
        Services Statistics

         Vienna, Austria
       September 20-24, 2010



SPPI for Retail Services in Canada



         Catherine Draper
          André Loranger


         Statistics Canada
1.    Introduction

Services industries comprise approximately two-thirds of the Canadian
economy and business services represent almost 40% of gross domestic
product compared to about 17% for government services and 11% for
personal services. Despite their importance, there is a significant gap in
the Canadian economic statistical system of price indexes for the business
services sector. This gap affects the quality of real output and productivity
change estimates for this sector.

In 2006-07, Statistics Canada began a significant expansion of its
coverage of the business services sector targeting roughly 30 broad
business services categories. The project has made significant progress
and several indexes were published in 2009-2010. The Retail Services Price
Index will be published in the fall of 2010.


2.    Definition of the Service Being Collected

Retail is a vital part of the Canadian economy and the services that
retailers provide are crucial for an effective and efficient flow of goods
through the distribution process. The Retail Trade Price Report survey
collects prices of product/service transactions essential to the creation of
a price index for the retail sector. The Retail Services Prices Index (RSPI)
measures the movement of the prices for the services provided by
retailers.

The retail trade sector comprises establishments primarily engaged in
retailing merchandise, generally without transformation, and rendering
services incidental to the sale of merchandise.

The retailing process is the final step in the distribution of merchandise;
retailers are therefore organized to sell merchandise in small quantities to
the general public. This sector comprises two main types of retailers, that
is, store and non-store retailers. The Retail Trade Price Report covers only
store retailers.

Store retailers operate fixed point-of-sale locations, located and designed
to attract a high volume of walk-in customers. In general, retail stores
have extensive displays of merchandise and use mass-media advertising
to attract customers. They typically sell merchandise to the general public
for personal or household consumption, but some also serve business and



                                      1
institutional clients. These include establishments such as office supplies
stores, computer and software stores, gasoline stations, building material
dealers, plumbing supplies stores and electrical supplies stores.

In addition to selling merchandise, some types of store retailers are also
engaged in the provision of after-sales services, such as repair and
installation. For example, new automobile dealers, electronic and
appliance stores and musical instrument and supplies stores often provide
repair services, while floor covering stores and window treatment stores
often provide installation services. As a general rule, establishments
engaged in retailing merchandise and providing after sales services are
classified in this sector. Catalogue sales showrooms, gasoline service
stations, and mobile home dealers are treated as store retailers.

Non-store retailers, like store retailers, are organized to serve the general
public, but their retailing methods differ. The establishments of this
subsector reach customers and market merchandise with methods such
as, the broadcasting of infomercials, the broadcasting and publishing of
direct-response advertising, the publishing of traditional and electronic
catalogues, door-to-door solicitation, in-home demonstration, temporary
displaying of merchandise (stalls) and distribution by vending machines.

The methods of transaction and delivery of merchandise vary by type of
non-store retailers. For example, non-store retailers that reach their
customers using information technologies can receive payment at the
time of purchase or at the time of delivery, and the delivery of the
merchandise may be done by the retailer or by a third party, such as the
post office or a courier. In contrast, non-store retailers that reach their
customers by door-to-door solicitation, in-home demonstration, temporary
displaying of merchandise (stalls) and vending machines typically receive
payment and deliver the merchandise to the customer at the time of the
purchase.

The non-store retailer subsector also includes establishments engaged in
the home delivery of products. This includes home heating oil dealers and
newspaper delivery companies.


3.    Pricing Unit of Measure Collected

The definition of the pricing methodology for the retail service is the
margin price per unit. The margin price per unit is derived by subtracting
the average purchase price per unit from the average selling price per



                                      2
unit. These prices reflect real transactions measured monthly, but
collected on a quarterly basis.

Retailers are asked to price two products for up to each of six commodity
groups. The selected products should be representative of the retail
activity and based on the sales revenue generated by these products.
The items should be high volume products that are sold year round.
Respondents are asked to continue reporting for these products each
quarter. However, when a product becomes obsolete, the respondent is
asked to provide a comparable product replacement. To produce a
constant quality series, retailers are asked to provide product
specifications for each product reported (refer to section 3.1). The
detailed specifications facilitate the identification and tracking of a
product over time.

      3.1       Main Variables Used to Price the Retail Service

      The main variables used to price the retailing service are:

               Product Description – Identifies a product, its color and/or
                other product attributes which can be used to uniquely
                identify and track the product or service reported.

               Product Manufacturer or Label – Identifies the manufacturer
                of the product, service or SKU (Stock Keeping Unit).

               Product Code - Can include the PLU (Price Look-Up code),
                UPC (Universal Product Code) or SKU.

               Size/Weight – Refers to the specific size or weight
                measurement for the product or service reported.

               Unit of Measure – Refers to a particular quantity or size,
                defined and adopted by convention, with which other
                quantities of the same kind are compared (dozen, foot, kg,
                liter, etc.).

               Retailing Activities – A list of activities performed by retailers
                for the products or services chosen. Price margins may
                fluctuate due to (perceived or actual) value-added by the
                retailer in performing all or any of these activities.




                                           3
              Average Vendor Price – The average vendor price is defined
               as the cost to the retailer to purchase a product/service from
               the supplier, excluding all taxes and rebates.

              Average Retail Price – The average retail or selling price is
               defined as the cost to the consumer as charged by the
               retailer, excluding taxes and freight.

              Main Reason for Vendor Price Change – Identifies the reason
               for a change in the vendor (purchase) price. Reasons can
               range from a change in supplier, change in product, inflation
               or exchange rate fluctuations.

              Main Reason for Retail Price Change - Identifies the reason for
               a change in the retail (selling) price. Reasons can range from
               a change in the retailing service offered, change in supplier,
               inflation or exchange rate fluctuations.


4.   Retail Market Conditions and Constraints

     4.1       Size of Retail Industry in Canada

     Retailing is a multi-billion-dollar industry in Canada, with operating
     revenues totaling $468.5 billion in 2008, up 4.5% from 2007. $13.9
     billion or 3.0% of these operating revenues were generated by non-
     store retailers (see Table 1).

     In 2008, the total number of retail establishments in Canada
     numbered approximately 162,111. Miscellaneous store retailers,
     clothing stores, convenience and specialty food stores, gasoline
     stations, pharmacies and personal care stores, and used and
     recreational motor vehicle and parts dealers represented 57.5% of
     all retail establishments in Canada. New car dealers,
     supermarkets, gasoline stations, general merchandise stores and
     used and recreational motor vehicle and parts dealers accounted
     for $282.8 billion or 60.4% of all retail operating revenues in 2008.

     Between 1999 and 2008 retail store sales in Canada grew at an
     annual compound rate of about 5.4%.1 in 2009 the retail sector


     1 Source:   Statistics Canada, CANSIM, table No. 080-0011




                                          4
       employed approximately 2.0 million Canadians or 11.9% of the total
       working population.2

       In 2009, the Gross Domestic Product (GDP) of the retail sector
       totaled $74.6B or 6.2% of Canada’s total (all industries) gross
       domestic product. If we include wholesale trade, the distributive
       trades sector accounted for approximately 11.8% of the all
       industries GDP.3

       Table 1: Number of Stores by Trade Group in Canada (based on the
       North American Industry Classification System) 4

            Trade Group          NAICS      # of        %         Operating         %
                                           Stores               Revenue (000’s)
New car dealers                   441        4,037       2.49        81,161,536    17.32
Used and recreational motor       441       12,260       7.56        22,657,767     4.84
vehicle and parts dealers
Furniture stores                  442          3,828     2.36        10,050,837     2.15
Home furnishings stores           442          5,339     3.29         5,877,630     1.25
Computer and software stores      442          2,924     1.80         2,162,240     0.46
Home electronics and              442          6,862     4.23        13,925,922     2.97
appliance stores
Home centres and hardware         444          3,842     2.37        21,949,848     4.68
stores
Specialized building materials    444          4,941     3.05         6,745,846     1.44
and garden stores
Supermarkets                      445          7,970     4.92        72,135,970    15.40
Convenience and specialty         445         16,716    10.31        13,907,988     2.97
food stores
Beer, wine and liquor stores      445          3,770     2.33        16,754,083     3.58
Pharmacies and personal           446         14,022     8.65        31,546,499     6.73
care stores
Gasoline stations                 447         16,127     9.95        54,196,011    11.57
Clothing stores                   448         16,890    10.42        18,650,534     3.98
Shoe, clothing accessories        448          9,089     5.61         6,156,482     1.31
and jewellery stores
Sporting goods, hobby, music      451          9,059     5.59        11,853,755     2.53
and book stores
General merchandise stores        452          7,307     4.51        52,632,213    11.23
Miscellaneous store retailers     453         17,128    10.57        12,276,966     2.62
Non-store retailers               454                                13,887,277     2.96
Total                                      162,111     100.00       468,529,404   100.00


2 Source: Statistics Canada, CANSIM, table No. 282-0008
3 Source: Statistics Canada, CANSIM, table 379-0027
4 Source: Statistics Canada, CANSIM, table No. 080-0011 and No. 080-0012




                                          5
4.2   Special Conditions and Restrictions

Margin pricing introduces a new dimension to index construction as
margin prices may behave very differently from gross retail sales
prices and must be treated accordingly. The retail industry in
Canada, while seasonal in nature is also influenced by price
volatility and fashion trends.

There are a few issues associated with seasonality and seasonal
goods that must be considered when pricing retail services. The first
is the importance of including seasonal goods at the appropriate
time as the truncation of seasonal items could distort price
measurement. One way to avoid this is to stress to survey
respondents that product selection should reflect an annual period.
Take for example, a respondent reporting prices for men’s
fall/winter dress pants. Reporting for this product starts at the
beginning of the fall/winter season with high margins. The margins
fall to mid-level by the spring and are sold at a loss in the summer.
The respondent has followed this same pattern for the past two
years. The price index reflects this seasonal volatility, but one must
be careful and avoid substituting a non-comparable product at the
end of the previous item's season as this would break the series and
cause a downward bias on the index. To minimize the downward
bias and deal with cases like this, it is preferable to find comparable
substitutions to link in.

The second issue relates to setting the base price for a good. When
establishing a new series, re-pricing an item or taking a non-
comparable substitution, sale prices or near-zero prices should be
avoided. Sale prices and prices approaching zero can cause
fluctuations in the price relative in the month that the price is first
encountered and again in the month that the price reverts to
normal. Consider the example where a retailer reports a margin
price of $0.02 at the end of the year for cucumbers. The following
month the margin price returns to $0.32, resulting in a price relative
of 16. Under normal circumstances when the margin price
approaches so close to zero we would generally exclude this price
from estimation. If the margin price had reached $0.00, it would
have been automatically excluded as zero or negative margins are
excluded from the index calculations.

Clearance sales can also distort the price index. As a case in point,
a brand of computer laptop entered the sample with a margin



                               6
price of $186 per unit. By the third quarter that margin fell to $110,
being marked down as an end-of-life clearance item. The following
month, the margin price fell again to $34. By the end of the year,
the margin price was negative and in the first quarter of 2010 a
replacement product was received. For the year that this product
was in the sample, its margin price declined 80% from $186 to $34
(the negative margin being excluded from estimation). While high-
tech goods are always coming down in price (and implicitly,
margins are becoming narrower), it is doubtful that such a large
annual decline is representative of meaningful economic activity.
Clearance prices in general are not sustainable over the long run
for any business, and as such are viewed as one-time or special
events – they do not reflect trends in pricing over any significant
period of time. Ideally, we would substitute products out of our
sample before they become clearance items. When it is not
possible to do this, we try to find a comparable substitution to link
into the index.

Margin prices are expected to be volatile. An item with a gross
retail selling price of $10.00 and a margin price of $1.00 that has a
$.50 (5%) increase in the gross retail selling price results in a 50%
increase in the margin price of this item. The volatility is caused by
the very small value that a margin price has relative to the gross
retail selling price. A small change in a vendor or retail price can
cause a significant movement of the price index. While margin
prices can indeed be volatile, margin volatility is sometimes
indicative of other problems such as product mix issues.

While high fashion items account for a significant portion of retail
sales, these items are often only available for a few months and
then they must be replaced. To minimize fluctuations in the margin
prices it is important that the respondent be able to provide a
comparable product substitution with a comparable margin price
serving the same market niche (children’s clothing, for example).

Other factors such as globalization, the integration of advanced
technologies (e-commerce), and the adoption of innovative
practices (merchandising) have aided the growth and diversity of
the retail industry in Canada.




                                7
5.    Standard Classification Structure

The main classification of retail activity is by industry. The Retail Price
Report is based on the definition of retail trade under NAICS 44-45 (North
American Industry Classification System). The North American Industry
Classification System (NAICS) is an industry classification system developed
by the statistical agencies of Canada, Mexico and the United States.

The retail sample was selected using Statistics Canada’s Business Register.
The frame for the Retail Trade Price Report (limited to NAICS 44 and 45)
corresponds to the frame used for the Monthly Retail Trade Survey (MRTS).
A probability sample of 2200 retail units was selected based on
establishment revenue and stratified by NAICS. Each NAICS stratum was
further stratified by take-all (large) and take-some (small) units.

The sampling design involved 3 stages of sampling:

            1st Stage – Sampling of business units with probability
             proportional to size (revenue).

            2nd Stage – Sampling of commodity groups with probability
             proportional to size (sales) if the first-stage unit belongs to the
             Quarterly Retail Commodity Survey (QRCS), otherwise with a
             judgmental sample.

            3rd Stage – Sampling of items according to a judgmental
             sample (of representative items), to be determined by the
             respondent.

The publishing target for the Retail Services Price Index (RSPI) will be at the
5-digit level for NAICS 44-45 (refer to Appendix A), excluding NAICS 4411,
4412, 4541, 4542, and 4543. Automobile and Other Motor Vehicle dealers,
and Non-Store retailers are currently not in scope for the Retail Trade Price
Report, but may be addressed at a later date.

At the present time, retail data are not published at the product level, but
NAPCS (North American Product Classification System) coding has been a
“joint project of the national statistical agencies of Canada, Mexico and
the United States. The purpose of the project has been to develop a
unified standard for products which would allow comparisons of data
among the three participating countries. It will also facilitate integration




                                       8
of data at Statistics Canada.”5


6.    Evaluation of Standard vs. Definition and Market Conditions

The classification structure (NAICS) used to produce the Services Producer
Price Indexes (SPPI), and in particular the Retail Services Price Index (RSPI),
is consistent with that used by the turnover surveys at Statistics Canada
(Annual Retail Trade Survey, Monthly Retail Trade Survey and its
supplement the Quarterly Retail Commodity Survey). There are no special
or additional classifications for the RSPI program.

Statistic Canada’s Business Register is the sample source for both the RSPI
and the turnover surveys. This common sampling source facilitates sample
clean-up and comparison and it also ensures that industry level estimates
of price change and turnover are directly comparable.

As well, the first stage sampling methodology was modified to incorporate
a sample overlap between the Retail Trade Price Report and the
Quarterly Retail Commodity Survey (QRCS). The sample overlap
minimized research and pre-contact costs and facilitates comparability of
data between the two surveys.


7.    National Accounts Concepts and Measurement Issues for the Area
      Related to GDP Measurement

Several programs in the Canadian System of National Accounts cover the
retail trade sector. These programs are: the Monthly Industry GDP
program, the Provincial Industry GDP program, and the Input-Output
programs in both current and constant prices. As well, retail sales are an
important data source for the Personal Expenditure series in the Quarterly
Income and Expenditure Accounts. This section will focus entirely on the
concepts of the industry programs, notably the Monthly industry GDP
program and the Input-Output programs. Since the conceptual
framework and data requirements of the Provincial Industry GDP program
resemble that of the Monthly GDP program, it is not discussed explicitly
here.


5Source: http://www.statcan.gc.ca/subjects/standard/napcs/introduction-eng.htm;
page1.




                                        9
        7.1   Annual Industry GDP

        Annual Input Output Accounts in Current Prices

        The Input Output (IO) Accounts are the most detailed
        representation of the Canadian economy from which the
        benchmark values of GDP in the Canadian System of National
        Accounts are computed.

        The IO tables are compiled using a wide variety of data sources
        including annual industry turnover data collected by Statistics
        Canada. The balancing process ensures that both the product and
        the industry identities6 are respected. From the balanced current
        price IO tables, GDP can be estimated in three different ways: as
        the sum of incomes, the sum of final expenditures or using the value
        added approach.

        The retail sector is presented as one industry in the Canadian IO
        accounts. The main output of the industry is the retail margin which
        is defined as the sales of goods purchased for resale less the cost of
        goods purchased for resale. It should be noted that the retail
        industry also produces other products that are also part of its gross
        output. Outputs, intermediate consumption and value added
        (wages, surplus) are derived from variables available from the
        Annual Retail turnover survey.

        The Annual Retail turnover survey and other data sources are also
        used to compute the retail margin by product/commodity. These
        margins form the basis of the retail margin table. The retail margin
        table along with other margin tables (wholesale, transportation and
        tax margins) are an important element of IO tables because they
        provide the link between the producer price (modified basic prices)
        valuation and the purchaser price valuation.




6 TheIO tables contain two sets of interrelated accounts: the industry accounts and the
commodity (or product) accounts. From these accounts, two basic identities can be
derived:
        Product Identity: Output + Imports = Intermediate Consumption + Final
           Consumption Expenditure + Gross Capital Formation + Exports
        Industry Identity: Output = Intermediate Consumption + Gross Value Added




                                           10
Annual Input Output Accounts in Constant Prices

The constant price IO tables are estimated by deflating the current
price IO tables using a variety of available deflators such as the
Industrial Product Price Index for manufactured goods or the
Consumer Price Index for final consumer expenditures. GDP at
constant prices is estimated using the double deflation method (the
difference between deflated gross output and deflated
intermediate inputs).

Due to the lack of deflators for the retail margin, the retail margin
cannot be deflated directly and an alternative margin rate
methodology is used. The margin rate, defined as the ratio of the
value of the margin to the basic value of the commodity where the
margin is applied, is calculated in current prices. The average
margin rates (between the base year and the current year) are
then applied to the constant price basic value of the commodity to
compute the constant dollar margin estimate. An implicit price
index is calculated by dividing the current dollar sum of input and
final demand retail margins by the sum of their constant dollar retail
margins. The implicit index is also used to validate the results of the
deflation exercise.

It should be noted that the current and constant price IO tables in
Canada are compiled in an iterative process where current and
constant price estimates are confronted and reconciled. The
constant dollar GDP estimates are the basis for the Monthly Industry
GDP program which is based on a projection methodology.

The methodology used to compile national input-output tables at
constant prices is documented in A Guide to Deflating the Input-
Output Accounts: Sources and Methods – 2001.

7.2   Monthly industry GDP

The monthly measures of industry GDP are projections of the annual
estimates of constant price GDP at basic prices by industry. In the
retail trade sector, “changes in constant price output are used as
indicators of the growth rates in constant price value added. The
movement in constant price output is assumed to be represented
by the month-to-month growth rates in constant price sales by
retailers. Current price sales by retailers (from the monthly turnover
survey) are deflated using weighted aggregates of Consumer Price


                               11
       Indexes (CPI) of the various commodities traded. Weights are shares
       of gross sales by retailers, taken from the Quarterly Retail
       Commodity Survey by Statistics Canada. An adjustment is made for
       changes in retail sales tax rates whenever necessary.”7

       7.3       Issues with Current Methodology

       There are several issues with the current methodology for estimating
       annual industry GDP for the retail sector. These are:

                A direct index is not used to deflate the retail margin and an
                 implicit index and a margin rate methodology has to be used
                 which may not be as accurate.

                The retail margin ratio used in the calculation is based on
                 current dollar estimates. In all likelihood these won’t be the
                 same as the constant dollar estimates.

       7.4       Impact of New RSPI on Current Methodologies

       While a significant amount of analysis remains, the Retail Services
       Price Index (RSPI) is a new data source that could impact the
       System of National Accounts (SNA) methodology for estimating
       GDP in all of its industry GDP programs. These changes in
       methodology could potentially impact GDP estimates because
       there are significant differences between what is currently used by
       the SNA (currently there are no direct or implicit price indexes for
       retail so real output must be estimated indirectly) and the RSPI data.


8.     Quality Assurance Framework

The pricing methodology for the Retail Trade Price Report is defined as the
margin price per unit which represents the price of the retailing service
(see pricing formula on next page). The Retail Services Price Index strives
to measure the change in the price of the service and not the price of the
product. The respondent provides the vendor price and the retail price
for a selected product and a margin price per unit is derived from this
information. The prices reflect real transactions that are measured


7 Source:   Gross Domestic product by Industry: Sources and Methods with Industry Details,
Statistics Canada – Catalogue no. 15-548-XIE, pp 286-287




                                            12
monthly but collected on a quarterly basis. The margin price is used to
deflate the gross margin to get a measure of real retail output.

             MPtunit = Ptretail price/unit - Ptvendor price/unit
         The price relative is constructed on the margin price t/t-1.

The Voorburg Quality Assessment Framework is a score card that
measures the quality of a survey by comparing it against several
indicators. According to this framework, the overall design of the Retail
Trade Price Report is rated as Type A which indicates a solid, quality
product (see Table 2 below).

 Table 2: PPI Quality Assessment Framework for Retail Trade Price Report

POINTS                   CATEGORY and QUESTIONS                         SCORE
         1. Shipment Price                            (Weight = .10)
                                Select a. or b.
  0      a. Price represents order pricing, actual price at
         shipment may well be different.
 100     b. Price represents the completion of service or a proxy        X
         measure for the completed transaction.
         2. Representative of Current Period Production
         (Weight = .10)
                                Select a. or b.
  50     a. Emergence of new product lines or critical new               X
         product features has not occurred since the index
         reference period or since sample augmentation last
         done.

  0      b. Emergence of new product lines or critical new
         product features has occurred since the index reference
         period or since sample augmentation last done.
                                Select c. or d.
  50     c. Product substitution usually occurs when an item             X
         becomes obsolete or, if model pricing applies, the
         models are regularly updated to reflect changes.
  0      d. Product substitution usually does not occur when an
         item becomes obsolete or, if model pricing applies, the
         models are not regularly updated to reflect changes.
         3. Transaction Price                        (Weight = .25)
               Select the one most prevalent in the industry


                                        13
100   a. The price is the real transaction price or a list price that   X
      can always be assumed to be equal to the transaction
      price.
50    b. The price is a list price not equal to the transaction
      price.
100   c. The price is a unit value for a homogeneous group of
      products.
50    d. The price is a unit value for a non-homogeneous
      group of products.
75    e. The price is a model price.
50    f. The price is constructed from input cost plus profit and
      overhead mark-up.
      4. Output Price                                 (Weight = .25)
              Select the one most prevalent in the industry
100   a. Recorded price reflects an actual transaction or               X
      average of actual transactions.
75    b. Recorded price reflects a model transaction
      incorporating the pricing of all features found in an
      actual transaction.
50    c. Recorded price reflects a model transaction
      incorporating the pricing of only some of the features
      found in an actual transaction.
50    d. Recorded price reflects some components of a
      transaction.
50    e. Recorded price reflects input costs plus overhead and
      profit margins incorporating the pricing of all features
      found in an actual transaction.
25    f. Recorded price reflects input costs plus overhead and
      profit margins incorporating the pricing of some of the
      features found in an actual transaction.
0     g. Recorded price reflects charge out rates for fixed
      labor inputs not directly tied to a specific quantity of
      output.
      5. Timely Measure                               (Weight = .10)
                                Select a. or b.
50    a. Pricing data reflect the service provision in the current      X
      period and are not lagged.
0     b. Pricing data are lagged.
      Select c., d., or e.
50    c. Pricing data reflect an average over the entire period.        X
40    d. Pricing data reflect an average of multiple
      measurements over a portion of the period.
25    e. Pricing data reflect a single point in time.


                                    14
             6. Constant Quality Maintained            (Weight = .20)
                                      Select a. or b.
     100     a. Rapid changes to product specification are not              X
             expected or, if they are, a good method to explicitly
             quality adjust is in use.
     0       b. Rapid changes to product specification are expected
             and no explicit quality adjustment method is in use.

             TOTAL                                                         100

             Type A Point Range = Over 90                                   X
             Type B Point Range = 70 to 90
             Type C Point Range = Less Than 70


9.         Quality Adjustment Methodologies

The Retail Services Price Index (RSPI) program has been in development
for approximately three years and will be published in the fall of 2010. The
Retail Trade Price Report collects retail price data at the 5-digit NAICS
level and provides detailed industry information.

If there is a change in the level of service provided by the retailer, an initial
attempt at valuation includes a discussion with the respondent to see if
there is some reasonable and objective value that can be assigned. If this
is not possible, then the alternative is to simply link to show no change.

When a product is replaced, an evaluation is carried out to determine
whether the new product is a comparable or non-comparable
substitution. If the new product serves the same niche market as the old
product, then it is considered a comparable substitution and any price
change is accepted. If the new product serves a different niche market
(eg. replacing a medium grind roast coffee with an organic, fair-trade
coffee), then it is considered a non-comparable substitution since the new
product no longer services the same niche market with the same basic
functionality. Where possible, the quality difference between the two
items should be used for quality adjusting the margin price difference;
otherwise the item is linked in with no change.

Respondents are asked to provide the reason(s) why a retail or vendor
price has changed. Reasons can range from a change in the level or
type of service offered, a change in the supplier, exchange rate
fluctuations or inflation. The option to specify another reason is available.


                                       15
Respondents might be contacted for further clarification or follow-up if
needed.

The terms or conditions of the retailing service are controlled for by the
retailing activities (handling of warranty claims, inventory management,
product training, etc.) in order to achieve a constant quality price index.
A set of systematized edits and procedures are in place to identify outliers
and possible reporting errors. For example, an average price increase or
decrease of ≥ 10% for a product triggers an edit and follow-up with the
respondent.


10.   Evaluation of Comparability with Turnover/Output Measures

The Distributive Trade Division (DTD) at Statistics Canada is responsible for
surveys of revenue and expenses (turnover surveys), while the Producer
Prices Division (PPD) is responsible for developing and producing the
Services Producer Price Indexes (the Retail Services Price Index belongs to
this group). The System of National Accounts is responsible for producing
estimates of real and nominal GDP and use data from DTD (turnover) and
PPD (margin prices) to generate these estimates.

The level of comparability between the Retail Trade Price Report and the
turnover surveys is high for several reasons:

            Both surveys use the same industry classification system
             (NAICS).

            The sample for the Retail Trade Price Report is a sub-sample of
             the Annual Retail Trade Survey (ARTS) frame which is derived
             from Statistics Canada’s Business Register.

            The first stage probability sampling for the Retail Trade Price
             Report was modified to incorporate an approximate 50%
             overlap with the Quarterly Retail Commodity Survey (QRCS).
             This overlap provided sales data by commodity group for the
             overlap sample units and permitted targeted second stage
             probability sampling to the commodity group level. It also
             facilitates one-to-one data confrontation of the overlap
             sampling units.

The RSPI and the turnover surveys conduct ongoing coherence analysis to
ensure both surveys are tracking economic activity for this service and


                                     16
that activity makes sense. Analysts from Distributive Trade and the
Producer Prices divisions frequently collaborate to confront and discuss
outliers or other data anomalies.

The main difference between the surveys is frequency of collection – ARTS
is annual whereas prices data are collected monthly on quarterly basis.


11.       Summary

The Retail Services Price Index program will be an important information
source for Statistics Canada and the availability of commodity price data
for the retail sector will greatly benefit our statistics program by:

         Feeding the Statistics Canada research agenda.
         Providing a comprehensive set of retail indicators that will lead to
          better estimates of real output and productivity.
         Providing information on the behavior of margin prices for retail.
         Helping to answer questions related to the retail sector in Canada.


12.       References

         North American Industry Classification System (NAICS) – Canada
          (2002) Catalogue no. 12-501-XPE2002001.

         A Guide to Deflating the Input-Output Accounts: Sources and
          Methods - 2001, Statistics Canada – Catalogue no. 15F0077GIE, pp
          20-21.

         Gross Domestic product by Industry: Sources and Methods with
          Industry Details, Statistics Canada – Catalogue no. 15-548-XIE, pp
          286-287.

         Guide to the Income and Expenditure Accounts, Statistics Canada –
          Catalogue no 13-017, p119, paragraph 7.43 and 7.44.

         State of Retail: The Canadian Report 2010, Industry Canada, Iu44-
          81/2010, pp 4-5.

         Barzyk, Fred, 2008: “SPPI for Wholesale Services in
          Canada”. Paper presented at the 23rd Voorburg Group Meeting,
          Aguascalientes, Mexico.


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        Appendix A: Breakdown of Retail Detail by NAICS

5-Digit
NAICS                                Description
44111*    New Car Dealers
44112*    Used Car Dealers
44121*    Recreational Vehicle Dealers
44122*    Motorcycle, Boat and Other Motor Vehicle Dealers
44131     Automotive Parts and Accessories Stores
44132     Tire Dealers
44211     Furniture Stores
44221     Floor Covering Stores
44229     Other Home Furnishings Stores
44311     Appliance, Television and Other Electronics Stores
44312     Computer and Software Stores
44313     Camera and Photographic Supplies Stores
44411     Home Centres
44412     Paint and Wallpaper Stores
44413     Hardware Stores
44419     Other Building Material Dealers
44421     Outdoor Power Equipment Stores
44422     Nursery Stores and Garden Centres
44511     Supermarkets and Other Grocery (except Convenience) Stores
44512     Convenience Stores
44521     Meat Markets
44522     Fish and Seafood Markets
44523     Fruit and Vegetable Markets
44529     Other Specialty Food Stores
44531     Beer, Wine and Liquor Stores
44611     Pharmacies and Drug Stores
44612     Cosmetics, Beauty Supplies and Perfume Stores
44613     Optical Goods Stores
44619     Other Health and Personal Care Stores
44711     Gasoline Stations with Convenience Stores
44719     Other Gasoline Stations
44811     Men's Clothing Stores
44812     Women's Clothing Stores




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       44813    Children's and Infants' Clothing Stores
       44814    Family Clothing Stores
       44815    Clothing Accessories Stores
       44819    Other Clothing Stores
       44821    Shoe Stores
       44831    Jewellery Stores
       44832    Luggage and Leather Goods Stores
       45111    Sporting Goods Stores
       45112    Hobby, Toy and Game Stores
       45113    Sewing, Needlework and Piece Goods Stores
       45114    Musical Instrument and Supplies Stores
       45121    Book Stores and News Dealers
       45122    Pre-Recorded Tape, Compact Disc and Record Stores
       45211    Department Stores
       45291    Warehouse Clubs and Superstores
       45299    All Other General Merchandise Stores
       45311    Florists
       45321    Office Supplies and Stationery Stores
       45322    Gift, Novelty and Souvenir Stores
       45331    Used Merchandise Stores
       45391    Pet and Pet Supplies Stores
       45392    Art Dealers
       45393    Mobile Home Dealers
       45399    All Other Miscellaneous Store Retailers
       45411*   Electronic Shopping and Mail-Order Houses
       45421*   Vending Machine Operators
       45431*   Fuel Dealers
       45439*   Other Direct Selling Establishments

* NAICS currently not in scope for the Retail Trade Price Report, but may
be addressed at a later date.




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